Upgraded Mining Operations With HPC And AI Will Define Success

Key Takeaways

• Operational transformations and strategic acquisitions enhance efficiency and liquidity, enabling infrastructure reinvestment and potentially boosting future earnings.
  
• Expansion into High Performance Computing and strategic Bitcoin investments can diversify revenue and leverage energy assets, enhancing long-term profitability.
  
• Expansion into HPC and AI sectors and reliance on U.S. energy markets introduce regulatory, financial, and operational risks that could affect margins and future cash flows.

Catalysts

Operates integrated bitcoin data centers in Canada, the United States, Paraguay, and Argentina.

• Bitfarms has rapidly transformed its operations, nearly tripling its hashrate to 18.6 exahash under management and improving efficiency by upgrading its miner fleet, which can drive revenue growth and boost net margins through 2026.
  
• The company has increased its energy capacity by over 90% and secured lower energy costs, enabling improved operating margins and profitability, which could positively impact earnings.
  
• Significant restructuring, including the strategic acquisition of Stronghold Digital Mining and the sale of the Yguazu site, has reduced CapEx needs and improved liquidity, facilitating reinvestment in U.S. infrastructure, potentially enhancing future earnings.
  
• Bitfarms is expanding into High Performance Computing (HPC) and AI, which could diversify revenue streams and leverage the energy assets for higher-margin opportunities, impacting net margins and long-term revenue growth.
  
• The new Bitcoin One strategy focuses on monetizing Bitcoin’s volatility with a disciplined investment approach, aiming to boost net profitability and earnings through strategic Bitcoin accumulation.

Bitfarms Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bitfarms's revenue will grow by 37.0% annually over the next 3 years.
• Analysts are not forecasting that Bitfarms will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Bitfarms's profit margin will increase from -40.1% to the average CA Software industry of 11.5% in 3 years.
• If Bitfarms's profit margin were to converge on the industry average, you could expect earnings to reach $62.0 million (and earnings per share of $0.09) by about July 2028, up from $-84.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.2x on those 2028 earnings, up from -8.7x today. This future PE is lower than the current PE for the CA Software industry at 55.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

Bitfarms Future Earnings Per Share Growth

Risks

• Bitfarms' expansion into the HPC and AI sectors brings additional regulatory risks, as projects could face delays pending necessary approvals and feasibility assessments, which may impact future revenue streams.
  
• The company’s reliance on U.S. energy markets and significant infrastructure build-out plans could expose it to energy price volatility and grid stability challenges, potentially affecting operating margins.
  
• Uncertainties around securing hyperscaler clients for their HPC capacities, coupled with long due diligence timelines, may delay expected revenue generation and cash flow improvements.
  
• The need for substantial capital expenditure on HPC and AI infrastructure, while shifting focus from Bitcoin mining, introduces risks if the gross returns on these investments do not materialize as expected, affecting net margins.
  
• Potential macroeconomic factors affecting Bitcoin prices could destabilize mining economics, impacting Bitfarms' anticipated cash flows and financial positioning through 2026.

Valuation

• The analysts have a consensus price target of CA$3.502 for Bitfarms based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $538.3 million, earnings will come to $62.0 million, and it would be trading on a PE ratio of 35.2x, assuming you use a discount rate of 7.5%.
• Given the current share price of CA$1.79, the analyst price target of CA$3.5 is 48.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.